ESG changes in the United States impacting Canada: The red glare

On February 11, 2025, the US Securities and Exchange Commission (SEC) Acting Chairman expressed concerns about the Climate-Related Disclosure Rule issued in March 2024. The Rule faced immediate legal challenges and was put on hold while the litigation proceeded. The Chairman criticized the Rule, claiming it could harm the capital markets and economy. He questioned the SEC’s authority to implement the Rule, its necessity, and whether proper procedures were followed in its adoption.
The recent changes in the SEC’s composition and the Presidential Memorandum on Regulatory Freeze influenced the ongoing litigation related to the Rule. These developments could impact the future course of action regarding the Rule. The potential revocation of the SEC’s climate-related disclosure rule may lead to a scaled-back mandatory climate-related disclosure rule in Canada, despite the release of the Canadian Sustainability Standards Board’s Standards.
President Trump’s executive orders in the US called for a review of diversity, equity, and inclusion (DEI) programs, aiming to limit such initiatives beyond the government. This directive prompted many US companies to reduce external DEI programs, amend public initiatives, and withhold DEI disclosures. Actions like removing pronouns from email signatures and weakening DEI targets have been reported across various industries.
On February 11, 2025, the Institutional Shareholder Services (ISS) announced that it would no longer consider gender and racial diversity when making vote recommendations for director elections at US companies. Furthermore, the Federal Communications Commission initiated an investigation into a large US media company for allegedly violating DEI regulations. This investigation raises concerns about similar actions by other federal agencies that Canadian companies often interact with.
In Canada, public companies face pressures to disclose diversity information under TSX rules, securities laws, and governance rating organizations. The Canadian Securities Administrators have proposed new disclosure requirements for diversity and board renewal. The Government of Canada announced mandatory diversity disclosures for banks regarding board members and senior management.
Canadian companies operating in the US must navigate legal and stakeholder expectations for DEI disclosures alongside US regulators and stakeholders. The evolving landscape of DEI policy in the US may impact Canadian corporations with operations across the border. Staying informed and proactive in meeting DEI disclosure obligations will be crucial for Canadian companies with US exposure.